KELLUM v. COMMISSIONER

T.C. Summary Opinion 2005-29

UNITED STATES TAX COURT

VITTORIO KELLUM, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 4928-02S. Filed March 22, 2005.

Vittorio Kellum, pro se.

Lorraine Wu, for respondent.

PANUTHOS, Chief Special Trial Judge: This case was heard

pursuant to the provisions of section 7463 of the Internal

Revenue Code in effect when the petition was filed. The decision

to be entered is not reviewable by any other court, and this

opinion should not be cited as authority. Unless otherwise

indicated, all subsequent section references are to the Internal

Revenue Code in effect at relevant times, and all Rule references

are to the Tax Court Rules of Practice and Procedure.
 - 2 -

Respondent determined a deficiency in petitioner’s 1997

Federal income tax of $5,476, plus additions to tax. After

concessions by respondent, the remaining issues for decision are:

(1) Whether certain payments received by petitioner in 1997 are

excludable from gross income under section 104(a);

(2) whether petitioner is entitled to an additional charitable

contributions deduction pursuant to section 170 that was not

otherwise conceded by respondent; (3) whether petitioner is

entitled to a casualty loss deduction under section 165 stemming

from a 1997 automobile accident; (4) whether petitioner is

entitled to deduct, under section 162 or 183, various expenses

related to his insurance activity; and (5) whether petitioner is

liable for additions to tax for failure to file a timely tax

return under section 6651(a)(1) and for failure to make estimated

tax payments under section 6654(a).1

Some of the facts have been stipulated, and they are so

found. The stipulation of facts, supplemental stipulation of

facts, and the attached exhibits are incorporated by this

1
Respondent conceded prior to trial that petitioner is
entitled to the following itemized deductions: (1) Medical
expenses of $257.74; (2) personal property taxes of $1,450.11;
(3) charitable contributions of $450; (4) unreimbursed employee
business expenses of $436.75; (5) investment expenses of $513.63;
and (6) legal expenses of $1,311.25. Petitioner is also entitled
to a deduction for home mortgage interest paid of $6,809, as
reported by Temple-Island Mortgage.
 - 3 -

reference. At the time of filing the petition, petitioner

resided in Los Angeles, California.

Background

Petitioner did not file a Federal income tax return for

1997.2 On November 1, 2001, respondent issued to petitioner a

notice of deficiency in which respondent determined a deficiency

and additions to tax for petitioner’s 1997 tax year.

Respondent’s determination was based on information returns

received from third-party payors. The following amounts were

reported as paid to petitioner in 1997:

Payor Type of Payment Amount Paid

Compton Unified
School District Wages $27,325
Merrill Lynch et al. Stocks/bonds sale 2
Merrill Lynch et al. Stocks/bonds sale 17
Merrill Lynch et al. Stocks/bonds sale 19
Merrill Lynch et al. Stocks/bonds sale 401
Merrill Lynch et al. Stocks/bonds sale 694
Merrill Lynch et al. Dividends (ordinary) 22
Wells Fargo Bank Interest 16
American Network NEC income (nonemployee
Ins. Co. compensation) 31
Mitchell Energy Corp. Royalties 7,220
R.W. Durham NEC income (nonemployee
compensation) 1,427

Petitioner does not dispute receiving the payments reflected

above. With respect to the various proceeds from stock and bonds

sales reported by Merrill Lynch, Pierce, Fenner & Smith, Inc.,

2
Petitioner mailed to respondent a Federal income tax
return for 1997 on May 18, 2004, one day before the date of his
trial. A copy of the return was admitted at trial solely for the
purpose of assisting petitioner in developing his arguments and
claims for various deductions.
 - 4 -

petitioner substantiated his cost basis in the underlying

investments and respondent conceded at trial that petitioner is

entitled to a net capital loss of $771. In addition, petitioner

acknowledged receiving payments from Compton Unified School

District (Compton Unified) in the neighborhood of $27,325, but

claims that most of these payments were received as workers’

compensation benefits.

With regard to the issues for decision, we address each item

separately and, for convenience, we combine our findings of fact

and conclusions.

Discussion

In general, the Commissioner’s determinations set forth in a

notice of deficiency are presumed correct, and the taxpayer bears

the burden of showing that the determinations are in error. Rule

142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Pursuant

to section 7491,3 the burden of proof as to factual matters

shifts to respondent under certain circumstances. Petitioner has

neither alleged that section 7491(a) applies nor established his

compliance with the requirements of section 7491(a)(2)(A) and (B)

to substantiate items, maintain records, and cooperate fully with

3
Sec. 7491 applies to court proceedings arising in
connection with examinations commencing after July 22, 1998.
Internal Revenue Service Restructuring and Reform Act of 1998,
Pub. L. 105-206, sec. 3001(c), 112 Stat. 727. It appears that
the examination of petitioner’s 1997 tax return commenced after
the effective date of sec. 7491.
 - 5 -

respondent’s reasonable requests. For similar reasons, section

6201(d) does not apply to place on respondent the burden of

producing evidence to supplement the information returns. See

McQuatters v. Commissioner, T.C. Memo. 1998-88.

A. Income From Compton Unified

Petitioner began working as a math and science teacher for

Compton Unified in September 1995. Sometime about February 15,

1996, petitioner was injured during an altercation with a student

while teaching at Whaley Middle School. Petitioner suffered a

back injury and was unable to teach his classes for the remainder

of the spring 1996 school term. Petitioner was granted

“industrial accident leave” from February 16 until June 12, 1996,

and continued to receive his full salary.

Petitioner returned to teaching in September 1996 for the

beginning of the 1996-97 school year. Due to continuing concerns

over his health, petitioner returned as a substitute teacher on a

temporary contract and was assigned to the district’s substitute

pool. Certified quarterly earnings reports prepared by Compton

Unified reflect that petitioner received a monthly salary of

$2,626.81 from January 1997 through June 1997 and $2,895.77 for

September 1997 through December 1997.4 Compton Unified’s

4
No Federal income taxes were withheld from petitioner’s
salary during this time. Compton Unified’s payroll administrator
testified that petitioner was classified as an “exempt
individual”, but did not further explain the basis for the
(continued...)
 - 6 -

timesheets show that petitioner reported to the substitute pool

on a continuous and regular basis in 1997. According to the

timesheets, petitioner was either at work or took sick leave

throughout taxable year 1997.

Petitioner, however, testified that his back injury

prevented him from working for Compton Unified after March 15,

1997, and that any payments he received after that date were in

the nature of workers’ compensation benefits. On April 9, 1997,

petitioner filed for workers’ compensation benefits with the

State of California, Division of Workers’ Compensation, claiming

a back injury due to “continuous physical stress and strain”

occurring between September 1996 and March 15, 1997. On May 31,

2001, a Workers’ Compensation Judge with the Workers’

Compensation Appeals Board for the State of California awarded

petitioner a permanent disability indemnity in the amount of

$18,827.50 for the period beginning January 15, 1997. There is

no evidence that petitioner received any workers’ compensation

payments from the State of California in 1997.

In addition, petitioner received disability compensation

from Southern California Risk Management Associates, Inc. (SCRMA)

in 2000. In a letter from SCRMA, dated March 30, 2000, SCRMA

stated that it was enclosing a check in the amount of $6,858 as

4
(...continued)
exemption.
 - 7 -

“your permanent disability benefits from 01/01/97 through

10/27/97.” It is unclear from this record whether SCRMA is

associated with petitioner’s workers’ compensation claim with the

State of California or whether it is associated with Compton

Unified’s group insurance plans.

Gross income includes all income from whatever source

derived, unless excludable by a specific provision of the

Internal Revenue Code. Sec. 61(a). One exclusion from gross

income can be found at section 104(a)(1) for “amounts received

under workmen’s compensation acts as compensation for personal

injuries or sickness”. Another exclusion can be found at section

104(a)(3) for amounts received through accident or health

insurance for personal injuries or sickness, except if such

amounts are (a) attributable to contributions by the employer

which were not includable in the gross income of the employee, or

(b) are paid by the employer. See also sec. 105(a).

Taxpayers reporting income on the cash method of accounting,

such as petitioner, must include an item of income for the

taxable year in which the item is actually or constructively

received. See sec. 451(a); see also Polone v. Commissioner, T.C.

Memo. 2003-339; Knoll v. Commissioner, T.C. Memo. 2003-277

(applying this principle in the context of a section 104 case).

The record does not support petitioner’s claim for

exclusion. Petitioner applied for workers’ compensation benefits
 - 8 -

with the State of California on April 9, 1997, but was not

awarded any benefits until May 31, 2001. Petitioner also was

awarded disability payments stemming from his 1997 back injury

from SCRMA, but the record shows that these payments were made in

2000. Amounts received are included in gross income for the

taxable year in which they are received. Sec. 451(a); Polone v.

Commissioner, supra; Knoll v. Commissioner, supra. Therefore,

payments received in 2000 and 2001 are not to be considered in

petitioner’s 1997 tax year.

As indicated, for taxable year 1997, certified payroll

records from Compton Unified demonstrate that petitioner reported

for duty throughout 1997 and was paid his regular salary without

any kind of special injury or illness status. Petitioner did not

present any credible evidence to prove that he did not work after

March 15, 1997.

For the reasons stated above, we sustain respondent’s

determination that petitioner must include $27,325 of wages in

gross income for 1997.

B. Charitable Contribution Deduction

Petitioner claims a deduction for charitable contributions

of $4,110 for 1997. Respondent conceded that petitioner is

entitled to a charitable contribution deduction of $450. The

parties dispute whether petitioner is entitled to a deduction in
 - 9 -

the amount of $3,660 for contributions to the Greater Sunrise

Baptist Church.

Section 170 allows a deduction for charitable contributions

made for religious purposes. For contributions of money,

taxpayers must maintain canceled checks, receipts from the donee

organizations showing the date and amounts of the contribution,

or other reliable written records showing the name of the donee,

date, and amount of the contribution. See sec. 1.170A-13(a)(1),

Income Tax Regs. Petitioner bears the burden of proving he is

entitled to deductions claimed. See Rule 142(a); New Colonial

Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).

Petitioner produced a photocopy of a “contribution receipt”

from the Greater Sunrise Baptist Church dated December 30, 1997,

showing contributions in 1997 of $3,660.5 The receipt was

generated by a computer word processing program and was not

printed on an official letterhead of the church. The photocopy

bears the purported signature of “Rev. A.W. Crowder” and contains

the purported stamped seal of the church. It is unclear from the

receipt whether petitioner donated the entire $3,660 on December

30, 1997, or whether petitioner made periodic donations during

5
The receipt was submitted to the Court by a posttrial
Supplemental Stipulation of Facts. Respondent objected to the
admissibility of the receipt on the ground of authenticity. We
overrule that objection and admit the receipt as we conclude that
the receipt has some probative value. See Rule 174(b).
 - 10 -

the year totaling $3,660. Petitioner did not present testimony

with respect to the claimed contributions.

Under certain circumstances, where a taxpayer’s records are

inadequate to substantiate a claimed deduction, we may estimate

the amount. Cohan v. Commissioner, 39 F.2d 540, 544 (2d Cir.

1930). In order for the Court to make an estimate, we must have

some basis in fact upon which an estimate can be made. Williams

v. United States, 245 F.2d 559, 560 (5th Cir. 1957); Vanicek v.

Commissioner, 85 T.C. 731, 742-743 (1985).

While we have some doubt about the reliability of the

contribution receipt and the amount of petitioner’s

contributions, we find that petitioner attended church and made

some contributions to the church in 1997. Bearing in mind that

petitioner has the burden to prove that he is entitled to the

claimed deduction, we hold that petitioner is entitled to an

additional deduction of $800 for donations to the Greater Sunrise

Baptist Church. Thus, petitioner is entitled to a total

charitable contribution deduction of $1,250 for 1997 (including

the $450 previously conceded by respondent).

C. Casualty Loss From Automobile Accident

Petitioner claims a casualty loss of $11,418 for damages

sustained to his 1992 Toyota Camry during an automobile accident

with an insured driver on March 17, 1997. Following the

accident, petitioner filed a claim with the other driver’s
 - 11 -

insurance company. On June 18, 1997, petitioner received a

letter from the Coast National Ins. Co., Inc., which stated that

his claim had been assigned to an adjuster and was currently

being investigated.

Section 165(a) allows a taxpayer to deduct losses that are

“sustained during the taxable year and not compensated for by

insurance or otherwise”. For an individual taxpayer, if a loss

is not incurred in connection with a taxpayer’s trade or business

or in a transaction entered into for profit, the taxpayer may

deduct the loss only if it arises from a fire, storm, shipwreck

or other casualty, or from theft. Sec. 165(c)(3). In the case

of a casualty loss, if there exists a claim for reimbursement for

which there is a reasonable prospect of recovery, no portion of

the loss may be deducted until it can be ascertained with

reasonable certainty whether or not such reimbursement will be

received. Sec. 1.165-1(d)(2)(i), Income Tax Regs.

There was no further evidence in the record regarding the

settlement of the insurance claim or the timing of any insurance

reimbursement. Since there was an insurance claim representing a

reasonable prospect of recovery in 1997, and there is no evidence

to show whether or not petitioner received any insurance

reimbursement in 1997, or in a later year, petitioner is not

entitled to a casualty loss deduction under section 165(a). See

Commissioner v. Harwick, 184 F.2d 835 (5th Cir. 1950), affg. a
 - 12 -

Memorandum Opinion of the Court; Radding v. Commissioner, T.C.

Memo. 1988-250; sec. 1.165-1(d)(2)(i), Income Tax Regs.

D. Business Expenses

Petitioner received nonemployee compensation of $1,427 from

R.W. Durham and $31 from American Network Ins. Co. in 1997.

Petitioner claims that he operated an insurance business under

the name of Kellum & Associates in 1997 and that the $1,458

represents gross receipts or sales reportable on a Schedule C,

Profit or Loss From Business. Petitioner claims $2,440 in

business expense deductions from his insurance activity and

submitted an assortment of receipts and credit card statements of

various expenses including car rentals, restaurant receipts for

meals, and a cell phone.

Section 162 provides that a taxpayer who is carrying on a

“trade or business” may deduct ordinary and necessary expenses

incurred in connection with the operation of the business. To be

engaged in a trade or business within the meaning of section 162,

“the taxpayer must be involved in the activity with continuity

and regularity and * * * the taxpayer’s primary purpose for

engaging in the activity must be for income or profit”.

Commissioner v. Groetzinger, 480 U.S. 23, 35 (1987). If the

taxpayer is not engaged in a trade or business under section 162,

the taxpayer may generally deduct the expenses related to an

activity “not engaged in for profit” only to the extent of the
 - 13 -

gross income derived from the activity for the taxable year.

Sec. 183(a) and (b)(2).

As with other deductions discussed herein, petitioner bears

the burden of proving he is entitled to claimed business

deductions. See Rule 142(a); New Colonial Ice Co. v. Helvering,

292 U.S. 435, 440 (1934). A taxpayer is required to maintain

records sufficient to substantiate deductions that he or she

claims on his or her tax return. Sec. 6001; sec. 1.6001-1(a),

Income Tax Regs. Section 274(d) provides a strict substantiation

requirement for certain expenses related to travel (including

meals and lodging while away from home), entertainment, gifts,

and certain types of property such as a passenger automobile, a

computer or peripheral equipment, or a cellular telephone or

similar telecommunication equipment.6 Under section 274(d), a

deduction is not allowed unless the taxpayer is able to

substantiate the expense by adequate records or by sufficient

evidence corroborating the taxpayer’s own statement establishing

the amount, time, place, and business purpose of the expense.

Irrespective of whether petitioner’s insurance activity

qualifies as a “trade or business” under section 162 or whether

petitioner’s expenses are deductible under section 183,

petitioner has failed to properly substantiate his claimed

6
Sec. 274(d) overrides the principle established in Cohan
v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930), that the
Court may estimate expenses in some circumstances.
 - 14 -

business expenses under section 274(d). While petitioner

submitted various rental car receipts, restaurant receipts, and

credit card statements, he has failed to introduce any evidence

to establish a business purpose for the claimed expenses.7 There

is no evidence such as calendar entries or other

contemporaneously prepared logs to substantiate that these

expenses were directly connected with petitioner’s insurance

activity. Further, the credit card statements were in

petitioner’s individual name, and not his company’s name.

Accordingly, we hold that petitioner is not entitled to deduct

expenses in connection with his insurance activity.

E. Additions to Tax

1. Section 6651(a)(1)

Section 6651(a)(1) provides an addition to tax for a failure

to file a return on or before the specified filing due date

unless it is shown that such failure is due to reasonable cause

and not due to willful neglect. Once the Commissioner meets his

initial burden of production to show that the addition to tax is

appropriate, the taxpayer bears the burden of proving his failure

to file timely the required return did not result from willful

neglect and that the failure was due to reasonable cause. Higbee

v. Commissioner, 116 T.C. 438, 447 (2001).

7
The receipts were submitted to the Court in a posttrial
supplemental stipulation of facts. Petitioner did not provide
any testimony of their business purpose at trial.
 - 15 -

Petitioner did not file a return for 1997. Petitioner made

no showing that his failure to file was due to reasonable cause

and not willful neglect. Respondent’s determination in regard to

the section 6651(a)(1) addition to tax is sustained.

2. Section 6654(a)

Section 6654(a) provides for an addition to tax in the case

of an underpayment of estimated tax. Once the Commissioner meets

his initial burden of production to show that the addition to tax

is appropriate, the section 6654(a) addition to tax is mandatory

unless petitioner shows that one of the statutorily provided

exceptions applies. See sec. 6654(e); Higbee v. Commissioner,

supra at 447; Grosshandler v. Commissioner, 75 T.C. 1, 20-21

(1980).

As relevant to this discussion, section 6654(e) provides two

mechanical exceptions to the applicability of the section 6654

addition to tax. First, the addition is not applicable if the

tax shown on the taxpayer’s return for the year in question (or,

if no return is filed, the taxpayer’s tax for that year), reduced

by any allowable credit for wage withholding, is less than $500.

Sec. 6654(e)(1). Second, the addition to tax is not applicable

if the taxpayer’s tax liability for the preceding taxable year

was zero. Sec. 6654(e)(2).

Petitioner did not file a 1997 return, did not have Federal

income taxes withheld from his wages, and made no estimated tax
 - 16 -

payments in 1997. As such, respondent has satisfied his initial

burden of production to show that the section 6654(a) addition to

tax is appropriate. The burden of proof, including the burden to

establish the applicability of any exceptions, remains on

petitioner. See Higbee v. Commissioner, supra at 446; Spurlock

v. Commissioner, T.C. Memo. 2003-248. Petitioner has not shown

that any of the statutory exceptions are applicable. The section

6654(e)(1) exception does not apply because petitioner’s tax for

1997 is greater than $500. The section 6654(e)(2) exception does

not appear to apply because his tax liability for 1996 was not

zero, as the record shows that petitioner earned wage income in

1996.

Respondent’s determination in regard to the section 6654(a)

addition to tax is sustained.

Reviewed and adopted as the report of the Small Tax Case

Division.

To reflect the foregoing,

Decision will be

entered under Rule 155.